Flexible Spending Accounts (FSA)

About Flexible Spending Accounts (FSA)

Flexible Spending Accounts (FSA) are available to businesses with two or more employees. They enable employers and their employees to pay for a variety of medical and dependent care expenses with pre-tax dollars, as established by IRS Code Section 125. Often referred to as “cafeteria plans,” FSA plan designs are customizable and can be combined to help meet the benefit needs of any company and its employees. However, their advantage has been diminished since the arrival of Health Savings and Health Reimbursement Accounts. FSA’s biggest draw-back is that any money not spent by the end of the plan year (including any grace period) is lost (the dreaded “use it or lose it” rule).

Employer Advantages of FSA

• Reduces employment taxes: FICA, unemployment, and workers compensation
• Provides a corporate-sponsored benefit at no increase in cost
• Enhances employee benefit package – helps to recruit new employees and reduce turnover
• Easily understood and implemented if outsourced to the right administrative vendor

Employee Advantages of FSA

• Reduces taxable income
• Increases spendable income
• Offers an easy and convenient way to pay for expenses not covered by insurance; funds are available when expenses are incurred
• Allows the purchase of other benefits on a pre-tax basis
• Offers benefit selections based on their needs
• Benefits from Flex125™ accounts are higher than what Social Security will provide (in most cases)

Disadvantages of FSA

• “Use it or lose it” rule keeps many people from participating
• Healthcare reform is expected to lessen the tax advantages
• Health Savings and Health Reimbursement Accounts are superior
• Still subject to non-discrimination and top-heavy rules
• Small business owners/shareholders often can use them

Interested in FSA?

EmSpring not only provides a wide array of FSA options but also specializes in online and networked services that make FSA administration and participation easy and simple.